Franklin India Equity Fund (Prima Plus) Review: slipping performance?

Come September 2019, Franklin India Equity Fund (previously called Franklin Prima Plus) would complete 25 years – the 3rd such fund from the AMC (along Bluechip, Prima). In this performance review, we take a look at how Franklin India Equity Fund (FIEF) has fared against its benchmarks.

Product Positioning: From June 2018, the fund was renamed to India Equity fund and its product positioning was changed from “A diversified equity portfolio investing predominantly in large cap stocks with allocation to mid and small stocks” to “A diversified equity portfolio investing in large, mid and small-cap stocks”. However, it continues to be a mutlicap fund with a large cap tilt.

Investment strategy: The scheme will pick both growth and value stocks with a bottom-up approach to picking stocks across sectors. That is, consider the stock first and then look at the industry or sector. The benchmark is Nifty 500. We shall use both NIfty 500 and Nifty Largemidcap 250 to analyze performance. Nifty Largemidcap 250 is 50% of Nifty 100 and 50% of Nifty Midcap 150.

The volatility of FIEF has always been lower than that of Nifty 500 and NIfty Largemidcap indices. The 3Y rolling risk is shown below as a sample.

With that out of the way, let us consider rolling returns over 10,7,5 and 3 years.

Ten-year rolling returns

Seven-year rolling returns

Five-year rolling returns

Three-year rolling returns

Two observations can be made here: (1) the fund has had trouble beating Nifty 500 in the last couple of years over 3 year periods. The outperformance over 5, 7, and 10 years have also dipped during this period.

The return outperformance may not seem impressive from the above, but over the last year, Nifty Largemidcap 250 index fell -7% and FIEF fell only by -4.9%. Although the fund has not beat the index over trailing 2,3,4 year periods (and barely managing over 5) its downside protection helped during the fall.

Will Franklin India Equity Fund Work?

The fund has provided excellent downside protection due to its large cap tilt. However. this means that when the mid and small cap space soars returns will be subdued. When the market falls, again the fund will appear to be a good pick. That said, the quantum of outperformance both on the risk and return fronts has also come down over time.

Existing investors: Can continue but must not expect this to behave like a multi-cap fund. It is what I would call as a portfolio fund – predominantly large cap with some mid and small caps. So for a fund like this to work, it should be your only or at least major holding. You can treat this as a mildly adventurous large cap fund! Continue to hold with the right expectations. If you are not happy with the abov mnumbers, exit.

New investors: I wonder if young investors would have the maturity and patience to invest in a fund like this. They will have to give it enough time to work and even then the outperformance will not be stellar. However, if you are looking for a large cap plus kind of fund then this will work as long as it is your only fund. That is good risk management and returns a bit more than the Nifty or Nifty 500.

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About the AuthorM. Pattabiraman(PhD) is the author and owner of freefincal.com. He is an associate professor at the Indian Institute of Technology, Madras since Aug 2006. Follow @freefincal “Pattu” as he is popularly known, has co-authored two print-books, You can be rich too with goal based investing (CNBC TV18) and Gamechanger and seven other free e-books on various topics of money management. He is a patron and co-founder of “Fee-only India” an organisation to promote unbiased, commission-free investment advice.
Pattu publishes unbiased, promotion-free research, analysis and holistic money management advice. Freefincal serves more than one million readers a year (2.5 million page views) with numbers based analysis on topical issues and has more than a 100 free calculators on different aspects of insurance and investment analysis.
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